Options

An option is a derivative instrument that establishes a contract between two parties concerning the buying or selling of an asset at a reference price.

The buyer of the option gains the right, though not the obligation, to buy a specific asset, while the seller incurs the obligation to sell if so requested by the buyer.

The price of an option consists of the difference between the current value of the asset and the option expiration price plus a premium based on the time remaining. Other types of options exist, and options can in principle be created for any type of valuable asset.

An option which conveys the right to buy something is called a call.
An option which conveys the right to sell is called a put.

Most options have an expiration date. If the option is not exercised by the expiration date, it becomes void and worthless.

On the internet you can find a plethora of option trading services. These services let you believe options are the best possible trading vehicle and promise you mindboggling returns. Of course do they charge an equal mindboggling fee for their services. Fact is that only a very few examples made money with options!

Options are an awesome vehicle to protect your investment but not to make money. If you are long with your stocks you could buy a put (QQQQ for the NASDAQ or SPX for the S&P500) to protect you from a black swan.

For more information on options you should read further here.

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